Directors’ oversight of company compliance obligations

This AICD Practice Statement focuses specifically on a director’s duty of care and diligence in overseeing a company’s regulatory compliance obligations.

In today’s complex regulatory landscape, directors are facing novel governance challenges as they navigate an increasing array of financial and non-financial risks. Stakeholder expectations are rising, and ASIC is heightening its focus on directors’ duties in relation to companies’ regulatory compliance.

A new landmark legal opinion by Michael Hodge KC and Sonia Tame, commissioned by the AICD, provides clarity for directors on the standard of care required in meeting their duty of care and diligence overseeing a company’s compliance obligations.

The AICD’s Practice Statement provides guidance and suggested steps for effective director monitoring and oversight of a company’s regulatory compliance in practice.

AICD Practice Statement | October 2024

• A company’s breach of its legal or regulatory compliance obligation does not necessarily mean that a director has breached their duty of care and diligence.
• Equally, it is not necessary for a company to actually breach its compliance obligation for a director to be found in breach of their duty of care and diligence.
• Directors must take reasonable steps to place themselves in a position to guide and monitor the company, remain alert to, and act on, ‘red flags’, and challenge management appropriately.
• There may be certain existential risks specific to the company that will require more intensive oversight by directors due to their significance.
• While directors are entitled to rely upon the advice of management and advisers, directors must critically assess such advice and bring their own independent judgment to bear.